Fitch Ratings assigns a 'BBB' rating to the expected issuance of $135.4 million Miami Beach Health Facilities Authority Hospital Revenue Refunding Bonds series 2012 (Mount Sinai Medical Center of Florida).
In addition, Fitch upgrades the ratings to 'BBB' from 'BBB-' on the following revenue bonds issued through Miami Beach Health Facilities Authority on behalf of Mount Sinai Medical Center of Florida (MSMC):
--Approximately $85.7 million hospital revenue refunding bonds, series 2004;
--Approximately $47.4 million hospital revenue bonds, series 2001A;
--Approximately $95.4 million hospital revenue bonds, series 1998.
The Rating Outlook is Stable.
The series 2012 bonds are expected to be issued as un-insured fixed rate bonds. Proceeds will be used to refund MSMC's outstanding series 1998 and series 2001A bonds and pay associated costs of issuance. A debt service reserve fund may be funded which would be viewed positively by Fitch. The issued is expected to be priced the week of Aug 20th through negotiation.
SECURITY
Debt service payments are secured by a pledge of gross revenues, a first mortgage on all of the Medical Center's property, and a debt service reserve account on the series 2004 bonds only. In addition, the Mount Sinai Medical Foundation (the foundation) has provided an unconditional guaranty on debt issued by MSMC.
KEY RATING DRIVERS
SUSTAINED PROFITABILITY IMPROVEMENT: MSMC's has maintained the improvement in profitability achieved in fiscal 2010 in fiscal 2011 and through the six months ended June 30, 2012. MSMC generated operating EBITDA of $52.7 million (excluding a $35 million impairment charge) in fiscal 2011 (9.8% margin) which is consistent with operating EBITDA of $53.3 million (10.3% margin) generated in fiscal 2010. Through the six-months ended June 30, 2011, MSMC operating EBITDA margin was 10.8%
IMPROVING LIQUIDITY METRICS: At June 30, 2012, MSMC had $182.6 million in unrestricted cash and investments equating to 140.3days cash on hand (DCOH), a 7.0 times (x) cushion ratio (based on pro-forma maximum annual debt service) and 76.2% cash-to-debt. Furthermore, adding the unrestricted cash and investments of the Foundation improves liquidity measures to 154.5 days cash on hand, a 7.7x pro-forma cushion ratio and 83.9% cash-to-debt.
HIGH DEBT BURDEN: Pro-forma MADS equates to a high 4.8% of fiscal 2011 total revenues compared to the 'BBB' category median of 3.3%. Despite the improved profitability MSMC's historical coverage of pro-forma MADS by EBITDA is light at 2.1x and 2.5x in 2011 and 2010, respectively, when compared to the 'BBB' category median of 2.6x.
IMPROVED MARKET POSITION: Although MSMC operates in the competitive Miami-Dade County market, the organization benefits from its location on Miami Beach and enjoys strong community support through the Foundation. Due to its excellent clinical reputation, the organization has been able to expand its reach in the market and maintain or improve clinical volumes and market share, particularly in cardiac services.
LARGE MEDICARE POPULATION: The patient population in MSMC's service area is heavily weighted towards governmental payors which may challenge profitability. In fiscal 2011, 68% of MSMC's total admissions were Medicare or Medicaid patients. While management has done a good job controlling expenses and expanding its reach in the market, expected reimbursement pressures at the state and federal level could hamper future performance.
CREDIT PROFILE
The upgrade to 'BBB' from 'BBB-' reflects the sustained improvement in MSMC's profitability and liquidity ratios since fiscal 2009. Management has successfully controlled expenses and extended its market reach to maintain or grow utilization. Fitch believes the divestiture of the Miami Heart Institute and the acquisition of the Comprehensive Cancer Center will positively affect operating performance going forward. However, MSMC's high debt burden and large Medicare/ Medicaid population remain primary credit concerns.
In fiscal 2011, MSMC generated a 2.4% operating margin and a 9.8% operating EBITDA margin (excluding a $35 million impairment charge related to the divestiture of the Miami Heart Institute) which compares favorably to the respective 'BBB' category medians of 1.7% and 8.5%. Furthermore, MSMC's 2011 operating results reflect a reduced contribution from the Foundation of $2.5 million compared to $10.0 million received in fiscal 2010-2008. Through the six months ended June 30, 2012 MSMC generated operating and operating EBITDA margins (without Foundation support) of 2.9% and 10.8%, respectively.
The improvement in operating performance reflects the medical center's positive utilization trends as well as effective expense control strategies implemented over the past three fiscal years by the medical center's management team. Although MSMC operates in the competitive Miami-Dade County metropolitan area, the medical center improved its draw and market share from outside its primary service area on Miami Beach. Inpatient admissions were mostly unchanged in 2011 compared to the prior year (22,926 vs. 22,898) while inpatient surgical volumes and emergency room visits showed growth. More importantly, MSMC improved its market share from outside its primary service area and in cardiac services and procedures.
At June 30, 2012, MSMC had $182.6 million in unrestricted cash and investments which is up from $174.6 million at FYE 2011 and $163.3 million at FYE 2009. MSMC's liquidity metrics are now in line with 'BBB' medians with 140.3days cash on hand (DCOH), a 7.0 times (x) cushion ratio (based on pro-forma maximum annual debt service) and 76.2% cash-to-debt as compared to 'BBB' category medians of 128.6 DCOH, 8.8x cushion ratio and 79.8% cash-to-debt. Furthermore, including the unrestricted cash and investments of the Foundation improves liquidity measures to 154.5 days cash on hand, a 7.7x pro-forma cushion ratio and 83.9% cash-to-debt. As of June 30, 2012, the net assets of the Foundation were $97.3 million compared to $92.1 million at FYE 2011.
Fitch's primary credit concern continues to be MSMC's high debt load and the large Medicare population in its service area. Although the series 2012 refunding is projected to reduce maximum annual debt service (MADS) to roughly $26.1 million from $28.2 million, pro-forma MADS equates to a high 4.8% of fiscal 2011 total revenues compared to the 'BBB' category median of 3.3%. Despite the improved profitability MSMC's historical coverage of pro-forma MADS by EBITDA is light at 2.1x and 2.5x in 2011 and 2010, respectively, when compared to the 'BBB' category median of 2.6x.
MSMC has $228 million of long-term debt outstanding of which 100% is in fixed rate mode. The medical center is not a counter-party to any swap transactions.
Mount Sinai Medical Center, a teaching hospital operated on three campuses in Miami Beach, is licensed for 672 beds of which 613 are staffed. The medical center offers a wide range of services including tertiary level services in oncology and cardiology. MSMC also operates two satellite primary care centers in Key Biscayne and Hialeah and a free standing emergency room in Aventura. MSMC had total operating revenues of $539 million in fiscal year end Dec. 30, 2010. MSMC covenants to provide annual and quarterly disclosure to bondholders. Quarterly disclosure is excellent, and includes management discussion and analysis, a balance sheet, income statement, cash flow statement, and utilization statistics. MSMC also conducts regular quarterly conference calls for investors.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (July 12, 2012);
--'Revenue Supported Rating Criteria' (July 12, 2012).
Applicable Criteria and Related Research:
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683418
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Contacts:
Fitch Ratings
Primary Analyst:
Jim LeBuhn, +1-312-368-2059
Senior
Director
Fitch, Inc.
70 West Madison Street
Chicago, IL
60602
or
Secondary Analyst:
Michael Burger,
+1-212-908-0555
Associate Director
or
Committee
Chairperson:
Jeff Schaub, +1-212-908-0680
Managing Director
or
Media
Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com